Myriad Genetics, Inc. — 2021 Q1 Form 10-Q Summary
Reporting period: Three months ended March 31, 2021; filed May 5, 2021. Financial statements are unaudited and prepared under U.S. GAAP. Myriad provides molecular diagnostic testing and pharmaceutical and clinical services.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $173.1 million | $164.0 million | +5.5% |
| Molecular diagnostic revenue | $159.6 million | $150.5 million | +$9.1 million |
| Operating loss | $46.7 million | $133.7 million | Improved $87.0 million |
| Net loss | $39.5 million | $115.2 million | Improved $75.7 million |
| Net loss per share | $0.52 | $1.55 | Improved |
| Cash flow from operations | $71.8 million | $16.8 million | +$55.0 million |
Operating and net loss margins were approximately negative 27.0% and negative 22.8%, respectively, compared with approximately negative 81.5% and negative 70.2% in the prior-year quarter. Molecular diagnostic testing cost was 27.6% of related revenue versus 28.6%; pharmaceutical and clinical services cost was 45.9% versus 51.9%.
- Revenue drivers: Prolaris increased $11.7 million, primarily from expanded coverage and claims for previously performed tests; myChoice CDx increased $5.1 million, largely from Japan; Prenatal increased $3.4 million. Hereditary Cancer Testing declined $9.1 million and GeneSight declined $2.8 million.
- Expenses: Research and development increased to $23.1 million from $19.7 million. Selling, general and administrative expense increased to $145.5 million from $132.9 million, driven primarily by strategic transformation costs and higher legal and professional expenses.
- Unusual comparison item: Q1 2020 included $98.4 million of goodwill and intangible-asset impairment charges; no such charge was recorded in Q1 2021.
- Cash and investments: Cash, cash equivalents and marketable securities totaled $188.0 million at March 31, 2021, up from $171.7 million at December 31, 2020. The increase primarily reflected an $89.6 million federal tax refund and $26.0 million of net stock-option exercise proceeds, partly offset by debt repayment.
- Debt: Net long-term debt was $154.0 million, down from $224.8 million at December 31, 2020, following a $70.0 million repayment. The revolving facility matures July 31, 2023 and had an interest rate of 4.5% at quarter-end.
Material changes versus the prior comparable period
- Revenue improved as diagnostic activity recovered from COVID-19-related disruption, although results remain affected by reimbursement and volume changes across products.
- Losses narrowed substantially, principally because the prior-year period included the $98.4 million impairment charge. Excluding that comparison effect, Q1 2021 operating costs increased, particularly SG&A and R&D.
- Operating cash flow benefited materially from the federal tax refund and improved receivables-related cash collections; it does not represent recurring operating performance alone.
- The February 2021 credit amendment reduced total revolving commitments from $350.0 million to $300.0 million, with a further reduction to $250.0 million by September 30, 2021, subject to specified conditions. Certain leverage and interest-coverage covenants were waived through the quarter ending March 31, 2022.
- A material weakness in internal control over financial reporting remained outstanding, involving intercompany transactions, foreign-currency exchange and foreign-currency translation. Management was implementing remediation measures.
Outlook, commentary, risks and unusual items
Management stated that diagnostic fundamentals continued to improve but cautioned that quarterly results are seasonal, with the March quarter typically affected by annual patient deductible resets. COVID-19 may disrupt historical seasonality and makes year-over-year comparisons less comparable. The filing does not provide specific revenue, earnings or margin guidance.
- Management expected existing capital resources and proceeds from planned asset sales to support operations and repayment of the outstanding facility, while acknowledging that additional financing could become necessary.
- After quarter-end, Myriad agreed to sell its myPath laboratory to Castle Biosciences for $32.5 million and selected Autoimmune assets and intellectual property, including Vectra, to Laboratory Corporation of America for $150.0 million. Myriad continued to evaluate strategic alternatives for its RBM business.
- Key risks include COVID-19 effects, reimbursement and payer coverage changes, declining test volumes or margins, competition, regulatory and intellectual-property matters, covenant compliance, and execution of the strategic transformation.
- Legal proceedings include a federal and California False Claims Act-related qui tam matter and a securities class action for which the court denied the Company’s motion to dismiss. The Company stated that potential losses could not be estimated; management did not expect the Illinois matter to have a material impact.
- Medicare represented approximately 19% of Q1 2021 revenue. Repayment of approximately $29.7 million of advanced Medicare payments began in April 2021.
Important facts for investors to verify
- Whether the Prolaris and myChoice CDx revenue increases are sustainable after coverage-related and previously constrained claims.
- The recurring cost structure after strategic transformation spending, including elevated SG&A and R&D expenses.
- The amount, timing and use of proceeds from the announced asset sales and any further RBM strategic transaction.
- Compliance with amended credit-facility covenants, commitment reductions and the July 2023 maturity.
- Progress in remediating the material weakness and whether future filings report effective internal controls.
- Cash-flow normalization after the $89.6 million tax refund and the effect of Medicare-payment repayments beginning in April 2021.
- Potential exposure from the pending legal proceedings, payer recoupment requests and tax audits, for which the filing does not provide a clear estimated loss range.